Cuomo’s Glass Housing

It took Andrew Cuomo two tries to make it to the governor’s mansion. A 2002 run started auspiciously, with the charismatic and telegenic Cuomo leading the pack in both the polls and fundraising. But his campaign fell apart when he made disparaging comments about Republican Governor George Pataki’s handling of September 11 recovery efforts. Momentum shifted against him, and he dropped out of the race to clear the way for New York’s milquetoast comptroller, Carl McCall, to run uncontested in the Democratic primary and lose handily to Pataki in the general election. Cuomo’s penance was to run in the next cycle for attorney general, as the incumbent of that office—none other than Eliot Spitzer—ran for governor.

Cuomo saw Spitzer, the son of a real estate magnate, use the AG post to propel himself to civic fame as the “Sheriff of Wall Street”—much of Spitzer’s policing consisted of publicly shaming corporate interests and threatening prosecution to squeeze money out of tycoons who were never charged with crimes—and figured it might punch his ticket someday, too. The gambit paid off sooner than expected as Spitzer proved unable to resist the lure of a high-price prostitution ring and resigned in shame. His lieutenant governor, David Paterson, was elevated to governor but always seemed overwhelmed in the big chair. A recurring Saturday Night Live sketch played on Paterson’s legal blindness and hapless nature by constantly having him wander on camera at inappropriate times. Paterson briefly launched a campaign for a full term, but decided to step aside for Cuomo as Cuomo had done for McCall. Reportedly, President Obama personally urged Paterson not to run. It must have been a slap in the face—Paterson was New York’s first African-American governor—but Cuomo had a date with destiny and, perhaps, designs on succeeding where his father hadn’t even tried.

At first blush, Cuomo doesn’t seem all that bad as far as Democratic governors of elite, coastal states go. In fact, a Cuomo presidency would be a day at the beach now that we’ve put more than five years of Obama’s Chicago-style cronyism behind us. Cuomo has been admirably willing to make tough choices, such as the deal he cut with New York’s largest public employee unions, the Civil Service Employees Association and the Public Employees Federation. In lieu of layoffs, Cuomo got the unions to agree to a suspension of raises for several years, furlough days, and increased contributions to their healthcare plans. He has said that reducing public employee pensions is a “top goal.” In his first year as governor, he managed to pass both an on-time budget that cut expenses without tax increases, and a property tax cap. Few Democratic governors have taken such decisive actions to restore fiscal sanity, preferring instead to indulge the unions and special interests at the trough.

But Cuomo has one huge, underreported skeleton in his closet that could emerge to block his path to the White House. During his tenure as attorney general, he had nothing but tough talk for the Wall Streeters whom he said caused the financial crisis. What he failed to mention was his own key role in causing it. From 1997 to 2001, Cuomo served as Bill Clinton’s Secretary of Housing and Urban Development, the only organization with regulatory powers over the two congressionally chartered housing finance companies at the center of the crisis, Fannie Mae and Freddie Mac. He fell into the role when, during a stint as assistant secretary, his predecessor, Henry Cisneros, became embroiled in a scandal for lying to the FBI about payments made to a former mistress. At 40, Cuomo was the youngest HUD secretary ever, and he had little previous experience in banking or finance.

A HUD press release from 1999 helpfully informs readers that “Congress gave HUD the responsibility of regulating Fannie Mae and Freddie Mac because the two companies are Government Sponsored Enterprises (GSEs) that were chartered by Congress.” Follow the logic of that non-answer. Congress gave HUD the responsibility to regulate Fannie and Freddie because Congress created them. Heaven forfend Congress should ever exercise any regulatory authority of it own, rather than delegating it to unelected functionaries. Reading this sort of stuff is enough to make anyone want to hop inside a DeLorean and go back in time to stop the madness.

The same release, remarkably, touts then-Secretary Cuomo’s initiative to force Fannie and Freddie to “provide $2.4 trillion in mortgages for affordable housing for 28.1 million families,” read: to buy up massive quantities of the bad-bet loans that eventually ended up getting us into this mess. Using his regulatory authority as HUD secretary, Cuomo increased the percentage of loans from low- and moderate-income families that Fannie and Freddie were required to buy from 42 to a staggering 50 percent of their purchases. I would like to sell some pre-scratched lottery tickets to whoever thought that was a good idea.

The release explains how the racket works for the uninitiated: “The GSEs buy mortgages issued by banks, thrift institutions and other mortgage lenders, and then package the loans and sell them to investors as mortgage-backed securities. When Fannie Mae and Freddie Mac buy the mortgages from lenders, they provide the lenders with the cash needed to issue new mortgages.” Mortgage-backed securities? Nothing could possibly go wrong, right? Cuomo sure didn’t think so. “This action will transform the lives of millions of families across the country,” he said at the time. And he was right. Just not in the way that he predicted.

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